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Matrrix Energy Technologies Inc
Symbol C : MXX
Shares Issued 131,769,355
Close 2019-05-15 C$ 0.21
Recent Sedar Documents

Matrrix Energy earns $2.04-million in Q1 2019

2019-05-15 20:33 ET - News Release

Mr. Lyle Whitmarsh reports

MATRRIX ANNOUNCES 2019 FIRST QUARTER RESULTS

Matrrix Energy Technologies Inc. has released its financial and operational results for the three-month period ended March 31, 2019. The Corporation is pleased to announce its continued success on its previously announced strategic plan of expanding into the drilling rig business in Western Canada. The Corporation recorded positive net earnings for the three months ended March 31, 2019

The following should be read in conjunction with the Corporation's unaudited condensed consolidated financial statements and the notes thereto for the three month period ended March 31, 2019 and related management's discussion and analysis, which are available on SEDAR at www.sedar.com.

All amounts or dollar figures are denominated in thousands of Canadian dollars except for per share amounts, number of drilling rigs, and operating days, or unless otherwise noted.

OUTLOOK & 2019 OPERATIONAL OVERVIEW

The Canadian Association of Oilwell Drilling Contractors' ("CAODC") average utilization for the first quarter of 2019 was 29%, down 28% from the corresponding 2018 period. Management believes the decrease in activity was primarily related to the Government of Alberta's mandated crude oil production curtailment program and continued pricing pressures related to pipeline capacity restraints in Western Canada. However, there is a sense of renewed optimism for increased forecasted activity in Western Canada with a newly elected Alberta government, which ran on a platform of regulatory and economic reform and a message that Alberta is "Open for Business". Notwithstanding the renewed optimism, the Corporation does not anticipate a significant recovery in Canadian activity in 2019 from 2018 levels.

Drilling Rig Division

Entering into its second full year of operations, the drilling rig division recorded net income of $1,211 and Adjusted EBITDA of $2,499 for the three months ended March 31, 2019 despite decreased drilling activity in Western Canada. Management believes the Corporation has been able to drive incremental revenue as a direct result of purchasing rigs that are of high quality and in high demand and have purchase prices below the cost of new builds. As at March 31, 2019, the Corporation has nine marketable drilling rigs, seven in Saskatchewan and two in Alberta. Overall utilization for the Corporation's drilling rig division in the first quarter of 2019 was 47%. The Corporation's two rigs that were upgraded and relocated from Saskatchewan to Alberta in the fourth quarter of 2018 continue to be highly utilized, with a combined utilization rate of 75.6% in the first quarter of 2019. The Corporation's Saskatchewan rigs had a combined utilization rate of 45%. The Corporation is optimistic that the current utilization rates for both Alberta and Saskatchewan will continue through 2019 based on the 2019 forecasted drilling programs for its current and future customers.

The Corporation continues to maintain a strong balance sheet. At March 31, 2019, the Corporation's total debt to EBITDA (as defined in the Operating Loan Agreement (the "Operating Loan")) was 0.70 to 1. The Corporation anticipates having full access to its $15,000 Operating Loan post spring break up after cash collections have been received from the winter drilling season. Management believes this access will provide the Corporation with flexibility to execute on strategic acquisitions, specific customer related upgrades and other opportunities that may arise and align with the Corporation's growth plan.

Directional Drilling Division

In April 2019, the Board of Directors approved the discontinuation of the Corporation's directional drilling operations starting in the second quarter of 2019 due to continued losses in the division since the first quarter of 2015. Management performed a thorough review of the directional drilling division, including the consideration of potential implications of all available options. Management and the Board of Directors determined that both significant capital investment which could not be projected to meet the Corporation's investment criteria, and major macroeconomic changes, which the Corporation could not project happening in the near future in Western Canada, would be required in order to see a path to profitability for the division. The Corporation is currently actively marketing its directional drilling assets.

FINANCIAL HIGHLIGHTS

  • FIRST QUARTER 2019 SUMMARY (Compared with the first quarter 2018)
  • Revenue from continuing operations of $7,763, up 41% from $5,488;
  • Gross margin from continuing operations of $3,360, up 75% from 1,920;
  • Adjusted EBITDA from continuing operations of $2,499, up 59% from $1,567;
  • Net income from continuing operations of $1,211, up 52% from $795;
  • Net income from combined operations of $2,041, up 921% from $200.

  
                                            Three months ended 
                                            March 31,
(000's CAD $)                               2019   2018     % Change
Continuing operations
Revenue                                     7,763  5,488    41%
Direct operating expenses                   4,403  3,568    23%
Gross margin (1)                            3,360  1,920    75%
Net income from continuing operations       1,211  795      52%
Basic and diluted per share                 0.01   0.01     0%
Adjusted EBITDA (1)                         2,499  1,567    59%
Basic and diluted per share                 0.02   0.01     100%
Combined operations (2)
Net income                                  2,041  200      921%
Basic and diluted per share                 0.02   0.00     nm
Adjusted EBITDA (1)                         3,028  1,152    163%
Basic and diluted per share                 0.02   0.01     100%
Capital expenditures                        255    313      (19%)
nm - not meaningful

(1) Refer to "Non-GAAP Measures" for further information   
(2) Combined operations represents the aggregated results of both
continuing and discontinued operations                   
                                                    
                                          As at March 31,
(000's CAD $)                             2019       2018  % Change
Current assets, including assets
classified as held for sale               11,366     21,625(47%)
Total assets                              51,989     45,13015%
Total current liabilities,
including liabilities related to
assets classified as held for sale        10,062     2,874 250%
Total non-current liabilities             3,529      2,341 51%
Shareholders' Equity                      38,398     39,915(4%)

FIRST QUARTER 2019 RESULTS OF CONTINUING OPERATIONS

Revenue in the first quarter of 2019 was $7,763, an increase of $2,275 (41%) compared to $5,488 in the first quarter of 2018. The increase was as a result of an increase in operating days due to the addition of two marketable rigs from seven at the end of the first quarter of 2018 to nine during the first quarter of 2019, and an increase in revenue per day of 15% from $17.9 in the first quarter of 2018 to $20.5 in the comparable 2019 period. The increase in revenue per day was related to the higher day rates in Alberta compared to in Saskatchewan as the Corporation relocated two rigs from Saskatchewan to Alberta during the second half of 2018.

Operating days in the drilling rig division of 378 days in the first quarter of 2019 was a 24% increase over the 306 operating days in the first quarter of 2018, as a result of the increase in rig count. The drilling rig utilization for the quarter ended March 31, 2019 was 47%, 62% above the CAODC industry average utilization rate of 29%, but below the drilling rig utilization of 57% in the first quarter of 2018. The decrease in drilling rig utilization was a result of the increase in active rigs from seven at the end of March, 2018, to nine at the end of March, 2019.

Direct operating expenses are primarily comprised of personnel, equipment, operating and repair costs, and shop expenses. Direct operating expenses for the three months ended March 31, 2019 were $4,403, up $835 (23%) from $3,568 for the three months ended March 31, 2018, also as a result of the increased operating days compared to the first quarter of 2018.

For the first quarter ended March 31, 2019, gross margin as a percentage of revenue was 43%, up 23% from a gross margin of 35% in the first quarter of 2018. The increase in gross margin as a percentage of revenue was primarily a result of decreased maintenance costs per day compared to the first quarter of 2018 when additional non-capitalizable expenditures were made to put the rigs acquired in 2017 to use as well as fixed operating costs being allocated over more operating days and an increase in revenue per day.

General and administrative expenses for the three months ended March 31, 2019 were $998, up $645 (183%) from $353 for the three months ended March 31, 2018, as a result of the increased headcount and the higher allocation of corporate expenses related to salaries, legal, IT, and rent from the directional drilling division in the first quarter of 2019.

For the three months ended March 31, 2019, Adjusted EBITDA in the drilling rig division was $2,499, a $932 (59%) increase from $1,567 in the first quarter of 2018, as a result of the increase in active rig count and higher gross margin which was partially offset by the increased general and administrative expenses compared to the first quarter of 2018.

                     Other Items
  
                                Three months ended
                                March 31,         
(000's CAD $)                   2019 2018 % Change
Gain from equipment lost in hole15   -    nm      
Finance costs                   (175)(109)61%     
Other income                    42   -    nm      
Foreign exchange gain (loss)    4    -    nm      
Transaction costs               (99) (277)(64%)   
Other items                     (213)(386)(45%)   
nm - not meaningful                               

For the quarter ended March 31, 2019, the Corporation recorded a gain of $15 related to equipment lost downhole. The timing of lost-in-hole recoveries is not within the control of the Corporation and therefore can fluctuate significantly from period to period.

For the quarter ended March 31, 2019, finance costs were $175, a $66 (61%) increase from $109 for the first quarter of 2018. The increase was due to $67 interest charged on the operating loan related to capital projects completed in 2018 and $17 interest on lease liabilities as a result of IFRS 16, Leases, offset by a $18 decrease in accretion on convertible debentures.

Non-capitalizable transaction costs related to potential acquisitions of $99 were incurred in the first quarter of 2019, a decrease of $178 (64%) from $277 on acquisitions in the first quarter of 2018. Transaction costs represent non-capitalizable amounts directly related to drilling rig acquisitions which consist of due diligence and external legal fees.

RESULTS OF DISCONTINUED OPERATIONS

On April 3, 2019, the Corporation announced the discontinuation of its directional drilling division. As part of this process, the Corporation determined that the assets related to the directional drilling operations had met the criteria under "IFRS 5 - Non-Current Assets Held for Sale and Discontinued Operations", to be classified as held for sale on the consolidated statements of financial position as at March 31, 2019, and the related directional drilling operations to be presented on the consolidated statements of comprehensive income as discontinued operations. The criteria were met based on certain events that occurred during the first quarter of 2019, supporting the Corporation's intent and high probability of the sale of the assets of the directional drilling division.

Revenue from discontinued operations for the three month period ended March 31, 2019 was $1,835, a decrease of $152 (8%) from $1,987 in the prior year comparable period, as a result of a 17% decrease in operating days offset by an 11% increase in revenue per day.

Direct operating expenses from discontinued operations for the three month period ended March 31, 2019 were $928, a decrease of $691 (43%) from $1,619 in the prior year comparable period. Gross margin as a percentage of revenue for the quarter ended March 31, 2019 was 49%, up 158% from 19% in the first quarter of 2018. The primary reason for the increase was the rebilling of repairs and maintenance costs of $285 to customers and the deferral of all non-essential repairs to the Corporation's owned equipment.

General and administrative expenses from discontinued operations in the first quarter of 2019 were $385, a decrease of $480 (55%) compared to $865 in the first quarter of 2018. The overall decrease was a result of a reduction in headcount in the division and the reallocation of corporate expenses of salaries, legal, IT, and rent from the directional drilling division to the drilling rig division.

The overall effect of the increase in revenue and the decrease in direct operating costs and general and administrative expenses resulted in Adjusted EBITDA of $529 in the first quarter of 2019, an increase of $944 (227%) from an Adjusted EBITDA loss of $415 in the first quarter of 2018.

We seek Safe Harbor.

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